Competition, Cost Innovation, and X-Inefficiency in Experimental Markets
This paper examines the relationship between competition, cost innovation, and x-inefficiency in experimental markets. In the lab, oligopolists make closer-to-optimal cost innovation expenditures than do monopolists, which result in lower x-inefficiency in oligopoly than in monopoly. Oligopolies also increase total surplus relative to monopoly, and consumer surplus makes up a larger portion of total surplus in oligopoly than monopoly. The data illustrate how x-inefficiency affects surplus dynamically and suggest price as a mechanism by which competitive pressure increases cost efficiency.
Smyth, A. (2016). Competition, cost innovation, and x-inefficiency in experimental markets. Review of Industrial Organization 48(3). http://doi.org/10.1007/s11151-015-9487-7